Discoms selling green power at lower than cost price on exchanges

On the country’s largest exchange, Indian Energy Exchange, prices during peak solar time have recently crashed to as low as ₹0.50 per unit, while long-term contracts typically lock discoms into paying between ₹2 and ₹3.50 per unit.

The surplus power reveals a bottleneck. India’s rapid expansion of green energy is outpacing its ability to store or manage the power effectively. With compulsory renewable purchase targets set to increase to 43% in 5 years, utilities find themselves trapped between green requirements, or renewable purchase obligations (RPOs), and a market that has nowhere else to put the power.

Renewable purchase obligations are mandates that require discoms to buy a minimum percentage of their total electricity consumption from renewable energy sources.

Rajesh Mediratta, managing director and chief executive officer of Indian Gas Exchange (IGX), confirmed the development and said, "Discoms find it better to sell at a loss, at any price they get, even at ₹1 or 2 per unit, rather than no return at all for the power procured."

The crisis has prompted the industry to seek solutions. Four people familiar with the matter said power distributors are now calling for a slowdown in the growth of green energy and more flexibility in mandatory purchase targets.

The issue is critical because India’s short-term electricity market is now a ₹1 trillion industry, with exchanges handling 175 billion units of power annually.

In comparison, India’s electricity sold through long-term power purchase agreements (PPAs) accounts for about 85-90% of the country's overall power supply annually, which exceeds 1,800 billion units.

Data from the Indian Energy Exchange showed that on 1 January, solar power prices bottomed out at ₹1.67 per unit, despite a massive surge in winter electricity demand.

A power purchase agreement for conventional solar and wind power is available in the price range of ₹2-4 per unit. The price of firm and dispatchable renewable energy (FDRE), which is a combination of solar, wind, and battery storage, is available at an average tariff of ₹5 per unit. FDRE is more stable than plain solar and wind power capacity, as it helps maintain grid stability.

The recent tariffs for power from solar-cum-storage projects are in the range of ₹2.90-3.60 per unit, with the projects currently in the tendering process being largely firm and dispatchable renewable energy or solar-plus-storage.

In May last year, prices in RTM crashed to zero for the first time, amid a surplus supply, unseasonal rains, and subsequent lower demand.

"Oversupply is the main reason, and it should be a concern for generators, more so for the discoms. What discoms need to do is enhance their demand management. TOD (time of the day) tariff would play a key role on this front," added Satyajit Ganguly, former MD and CEO of Power Exchange of India Ltd.

Time of the day tariff offers cheaper rates during solar hours to encourage usage when green energy is abundant and higher rates during evening peaks to reduce strain on the grid.

This comes in the backdrop of the distressed financial condition of discoms, which are reeling under a cumulative debt of over ₹6 trillion, according to the government's panel on financial viability of discoms. Out of India’s installed power generation capacity of 509 GW, solar and wind power account for 26% and 10.6%, respectively.

To complicate the matter, the renewable energy supply increased. The average daily volume of solar power traded on the exchange increased by 28% on year in 2025, compared to 2024. Average volumes of wind power increased by 17% year-on-year in 2024. Also, last week, from 29 December, solar power generation increased 16% to 428 million units per day from about 369 million units per day.

Indian green energy companies are worried.

Sanjeev Aggarwal, founder & chairman of New York-based I Squared Capital-backed Hexa Climate Solutions, a renewable power developer, cautioned that capacity addition should not be unlimited and must be in sync with projected demand.

"The current trend of discoms selling at losses isn't a roadblock; it’s a wake-up call signalling the end of blind capacity addition," he said. The sector is maturing, and the focus has decisively shifted to Firm and Dispatchable Renewable Energy. “While vanilla solar creates intermittent stress, Round-the-Clock (RTC) projects are the answer, ensuring renewables align with actual consumption patterns rather than just generation peaks," he added.

Aggarwal also suggested that there is a need to look beyond storage capacities. "Beyond just batteries, the key lies in thermal flexibilization—retrofitting coal plants to back down efficiently during solar hours. Simultaneously, shifting agricultural loads to daytime acts as a natural demand balancer. These structural changes are essential for energy transition without compromising grid economics," he added.

Experts say rationalization is the key.

“To avert such a situation (where discoms have to sell power at lower prices on the exchanges), there is a need for a rationalization of the plans to expand green power, as per the demand growth," former power secretary Alok Kumar said.

Kumar, currently director general of All India Discoms Association, an industry body representing power distribution companies, said that the applicability of RPOs should be flexible across states, with different norms for different states, given that their requirements and resources differ. Also, as round-the-clock power is seen as a better alternative, it needs to be adopted cautiously as the cost of integrating RTC may turn out to be higher, and the storage is not in use constantly, he said.

Queries emailed to the Union ministries of new and renewable energy, and power on Thursday, remained unanswered until press time.

The worrying development also comes at a time when several states, including Uttar Pradesh, Bihar, Assam and West Bengal, have signed costly coal-fuelled power purchase agreements rather than cheaper green power, as reported by Mint. Also, 43 GW green power capacity involving a ₹2.1 trillion proposed investment doesn't have PPAs and power supply agreements (PSAs) in place, as also reported by Mint. Additionally, there is a curtailment of green power generation in Rajasthan and Gujarat, two of the country's largest states for renewable power generation.

A representative from Punjab State Power Corporation Ltd, requesting anonymity, noted that such mismatches are expected during the transition phase due to differences in demand projections.

"This is more of a concern for plain vanilla solar. We expect that as the BESS (battery energy storage system) comes up, this issue should be sorted," the official said.

With the government setting a target to auction 50 GW of renewable power annually in 2023, the pace of capacity addition has picked up significantly. As of November 2025, India's total renewable energy capacity stood at 253.96 GW, with an addition of 44.51 GW in 2025. However, the commensurate capacity for evacuation and storage has yet to be established, leading to lower demand for solar power despite higher supplies.